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Beef Prices: What Cliff?

By: Ned W. Schmidt | Tuesday, December 4, 2012

Last we visited on Agri-Foods J. Wellington Wimpy, of whom we were a great
fan, was mentioned. If still around, poor old Wimpy would certainly be dismayed
by price to be paid for his favorite food, hamburgers. U.S. beef prices do
not seem to be aware of Obama Fiscal Cliff. As the chart below portrays, USDA
beef index, a composite of boxed and hanging beef prices, eked out a new 90-week
high. Given the fundamentals, beef prices seem destined to head higher. No
Obama Fiscal Cliff here.

Beef prices are moving higher for a variety of reasons. The falling prices
of this Summer set up conditions that would lead to higher prices. That decline
in beef prices during the Summer was due to continued liquidation of the cattle
herd as a result of dry conditions and herd reductions at feed lots as feed
grain costs rose to unprofitable levels. Several forces have pushed prices
higher from the Summer low. First, demand for beef globally remains strong.
Most people would rather eat a steak than a dry, tasteless, boneless hard-to-chew
chicken breast.

The other two forces also relate to the dry weather in much of the West and
Midwestern U.S. over the past two years. Due to that dry weather reducing available
pasture, ranchers have been essentially liquidating cattle herds for two years.
Sell the cow, and no calf in the Spring. Steaks are not made in a factory.
Feed lot operators continue to be extremely reluctant to take on feeder cattle
due to the high cost of grain for feed. This situation may persist for some
time as years are required to rebuild pasture after the rains return. Further,
dry conditions continue in the Midwestern U.S. which may reduce crop plantings
this coming Spring. Should that happen, feed grain prices would remain high.

Important to remember also is that global Agri-Food consumption is influenced
little, or none at all, by any resolution of the Obama's Fiscal Cliff. China
will still be feeding 1.3 billion people. Middle East will still need to import
half or more of their grain needs to feed their populations. Agri-Food consumption
is simply extremely resistance to many of the current economic woes. U.S. consumers
will give up buying silly new smart phones before they give up eating. Question
all this leads to is how can one hope to be able to afford those delicious
steaks, and not be forced to eat one of those repulsive, pale white chicken
breasts?

One of the answers to that question might be in the chart above. In that chart
is plotted our index of Tier One Agri-Equity prices. As can be readily observed
in that chart, it achieved a new high at the end of November. We will only
note that these results seem somewhat better than the equity market. By the
way, how is your favorite social networking stock or gold miner doing?

Companies comprising this index are largely international companies involved
in global Agri-Food production or trade. Some niche companies operating in
the U.S. are included. Investors might better service their food budget by
researching Agri-Equities in the coming cold months of Winter. Sleep in, rather
than listening to the latest pump-and-dump scheme on the morning business shows.
Then, while rested, and with your brain uncluttered with Street nonsense, do
your research later in the day.

AGRI-FOOD THOUGHTS is from Ned W.
Schmidt,CFA,CEBS, publisher of The Agri-Food Value
View, a monthly exploration of the Agri-Food grand cycle being created
by China, India, and Agri-Energy. To contract Ned or to learn more, use this
link: www.agrifoodvalueview.com

Ned W. Schmidt,CFA,CEBS is publisher of THE VALUE VIEW GOLD REPORT and
author of "$1,265 GOLD", published in 2003. A weekly message, TRADING
THOUGHTS, is also available to electronic subscribers. You can obtain
a copy of the last issue of THE VALUE VIEW GOLD REPORT at The
Value View Gold Report. Ned welcomes your comments and questions, and
tries to answer most all. His mission in life is to rescue investors from
the abyss of financial assets and the coming collapse of the U.S. dollar.
He can be contacted at ned@valueviewgoldreport.com